“Project Khokha”, whose results the Reserve Bank announced on Tuesday, successfully trialled interbank settlements using distributed ledger technology (DLT), of which blockchain, the mainstay of cryptocurrencies such as bitcoin, is one type.

Distributed ledgers use independent computers to record, share and synchronise transactions in online ledgers, without the need for an independent third party to verify those transactions. DLT could “fundamentally change the financial sector, making it more efficient, resilient and reliable”, according to the World Bank. In the long term, it could usurp a large portion of the work performed by trusted intermediaries such as banks and clearing houses.

DLT developments

Central banks around the world, meanwhile, are grappling with the implications of financial technology (‘fintech’) for financial markets and their supervisory roles in those markets. That Project Khokha has been a success puts the Bank at the cutting edge of developments in DLT, alongside the likes of the Bank of Canada and Singapore’s central bank.

The trial was designed, built and executed in three months. Key role-players included the Bank’s fintech unit, established in August 2017, and SA’s six biggest banks, as well as newcomer Discovery Bank.

The results show that the typical daily volume of SA’s payments system, averaging R350bn, could be processed on a distributed ledger in less than two hours with full confidentiality of transactions.

The Bank had “pushed the envelop in a number of ways” on the project, said Peter Munnings, technical lead of enterprise delivery at New York-based ConsenSys, a blockchain software technology firm and the Bank’s technology partner.

“There are many issues to consider before the decision to take a DLT-based system into production can be taken,” the Bank said.

“Some of these issues relate to the practicalities of implementation, but also to legal and regulatory factors, and to the broader economic impact.”

One of the objectives of Project Khokha was to better understand how the South African Multiple Option Settlement (SAMOS) system would integrate with a DLT system. SAMOS is the current interbank settlement system provided by the Bank, allowing banks to settle their obligations in real-time.